* Red Kite co-founder: supply of copper scrap grew earlier in year
* Adds that scrap supply is tighter now
* Says overall copper availability hit by mine disruptions
* Says "hard to be optimistic" on outlook for nickel prices (Adds detail on China copper demand)
HONG KONG, May 10 (Reuters) - Supply of copper scrap has tightened recently after growing in the first quarter, while disruptions at major mines earlier in 2017 are hitting availability of the metal, the co-founder of metals hedge fund RK Capital Management, said on Wednesday.
Crimped supply of copper, used in everything from wiring to construction, would drag on prices that have eased this year after surging in 2016.
"We are hearing that scrap availability has tightened up. Some of the disruptions to mine supply in the first quarter will be felt in metal supply now," David Lilley said at the LMEWeek Asia conference in Hong Kong.
A strike at the world's biggest copper mine in Chile and a dispute over mining rights in Indonesia hit copper markets earlier in the year.
On the demand side, tighter credit and regulation have knocked the metals industry in China, he said.
"China's demand is always the biggest fundamental and will set prices. The indications are that there is a deleverage process underway. That is having a dampening effect on enthusiasm and optimism."
Meanwhile, Lilley said that it was "hard to be optimistic" on the outlook for nickel prices given ample inventory throughout the supply chain and the resumption of exports from places such as the Philippines.
At least eight nickel mines in the Philippines have been suspended since last year for environmental breaches under a crackdown launched by former environment secretary Regina Lopez. But she was ousted last week by a panel of lawmakers that confirm appointments.
"At some stage, the price will do its job of rationing supply whether that is at $9,000 (per tonne), $8,500 or $8,000, I'm not sure, somewhere in that range," said Lilley.
London Metal Exchange nickel prices stood around $9,200 per tonne on Wednesday.
RK Capital Management is often referred to as Red Kite.
Reporting by Josephine Mason and Melanie Burton; Editing by Joseph Radford